Mutual Funds – An Investment Route for Attaining Financial Freedom

Financial Freedom is a stage in life when you do not work for the money; instead, money works for you. In other words, Financial Independence is a state when you have adequate monetary resources to take care of your expenses while following your passion for the rest of your life.

It does sound too good to be true. However, what would it be like if this turned out to be a reality? In fact, Financial Freedom is attainable and possible in everybody’s life span, provided one invests early, chooses the right investment product and religiously follows basic investment parameters with a focus on goals.

Mutual Funds: A Force to Reckon With

Mutual Funds tend to stand out when it comes to long-term, inflation-beating, and risk-adjusted wealth creation. The transparency, liquidity, professional management of corpus, and ease of investments make mutual funds a suitable and effective investment vehicle for attaining financial freedom.

Though mutual funds are highly effective in facilitating wealth creation, here is a quick guide for investors on how to make the most out of investing through mutual funds. 

a) Start Early: The earlier you start, the better the outcomes. Ideally, one should start investing in mutual funds with the very first pay cheque. It helps you stay longer which substantially improves the compounding impact. It needs to be noted that time spent in the market is much more important than timing the market. Be patient and disciplined to be a successful investor.

b) Choose Equity Schemes:  When young, your risk appetite is relatively higher. Thus, it is highly advisable that one should choose an equity-oriented mutual fund scheme, preferably a diversified equity fund. Historical trends suggest that equities tend to offer ~15% CAGR over the long term. With active fund management, the returns could be higher than the benchmark key indices.

c) Use a combination of SIPs and Lump sum: Systematic Investment Plan (SIP) is the most suitable way to invest in mutual funds, especially when investing for the long term. This mode of investment ensures you invest small but consistently over decades. SIP aids in better averaging out your costs and enables you to benefit from various cycles of the markets. A top-up of 10% is recommended as it automatically increases your monthly SIP contribution every year. Typically, the SIP amount should proportionately rise as the income goes up. Further, markets have various cycles — corrections, rallies, and consolidations amid volatility. Investors may use corrections and volatility to put additional sums to better the averaging of the cost of investments.

d) Go for Systematic Withdrawal: As one nears his/her finances it becomes imperative to review and restructure the portfolio if required. Here, be systematic even when it comes to reaping the benefits. You should consider opting for tools like a Systematic Withdrawal Plan (SWP) instead of withdrawing the entire corpus. As per your needs, you may set a monthly withdrawal limit which gets automatically deposited in your bank account on a monthly basis.

For meeting long-term financial objectives like retirement or creating secondary cash flow, an investor can consider utilising features that beautifully combine the power of SIP and SWP. One of the options to consider here is Freedom SIP, a helpful resource in paving the way for one’s financial freedom.